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Respondent’s revenue agent sent petitioners a number of
documents in September 2003 to resolve all non-farming activity
issues after she reviewed petitioners’ pro forma returns. These
documents included Form 4549A, Form 870, Waiver of Restrictions
on Assessment, Form 906, Closing Agreement Covering Specific
Matters (the closing agreement), and Form 872, Consent to Extend
the Time to Assess Tax. Petitioners needed to extend the period
of limitations because the period for 1999 would soon expire.
The closing agreement resolved the dispute relating to the
proper treatment of the trusts. In it, the parties agreed that
the trusts would be disregarded and the trusts were petitioners’
alter egos. Petitioners also agreed that they would report on
individual returns for 1999 and subsequent years all income,
expenses, and deductions, as allowed by the Code. In addition,
the parties agreed that petitioners would be liable for
additional taxes, penalties, and interest on their individual
returns due to collapsing the trusts.
Petitioners signed each document and returned them to the
revenue agent. Respondent also executed the closing agreement.
Shortly after petitioners signed these documents, the revenue
agent discovered that she had made errors in the Form 4549A
petitioners signed. The revenue agent had inadvertently omitted
interest income that petitioners had shown on their pro forma
returns, and she miscalculated the amount of capital gains.
Petitioners apparently did not notice these mistakes when they
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